Could the Greek economy be doomed

The common currency had a surprising trading week. It was able to shake off all the known (and worsening) troubles that plague it until Friday, where it peaked to nearly 1.4350, up nearly three full figures for the week. However, the unrelenting stream of bad weeks regarding the Greek situation took its toll that day.

A year after it was launched, the Greek bailout has proven a failure. The Greek economy is in free fall, its Government is unable to meet revenue targets, and still, its bonds trade at much lower levels than before to the bailout, discounting a default as a near certainty.

Greek economy may be doomed?

Worst of all, perhaps, is the deepening sense of disarray among the European leadership. ECB officials stubbornly cling to the notion that default can and must be avoided, and Trichet actually stormed out of a high-level meeting in protest that a Greek restructuring was being discussed.

European political leaders are increasingly unwilling to continue indefinitely bailing out private Greek creditors at par but are apparently at a loss as to how to deal with the ECB threat to bring down the Greek banking system if the debt is restructured. Meanwhile, peripheral spreads continue to widen. Given this, it is actually surprising that the euro managed to close the week more or less unchanged, in spite of Friday’s dramatic sell-off.